Blockchain Insurance Use Case

The insurance industry relies on long-standing processes that often involve third parties and sensitive customer data, making it uniquely positioned to benefit from and take advantage of blockchain technology, especially when used in conjunction with smart contracts. Blockchain can address many of the competitive challenges traditional agencies face, including limited growth in mature and emerging markets, poor customer engagement, and inefficient paper and digital processes.

#1: Auto initiation of claims via IoT devices

Blockchain technology could be combined with IoT devices for process automation purposes for claim reporting, handling, and payment, reducing administrative and operational costs. Connected homes and automobiles could identify loss events, such as crashes or floods, and report them directly to the insurer without needing to first involve the policy holder. Readings from connected devices could even be used to estimate the magnitude of the event and the potential loss involved in the report or claim. The claim handler or adjuster would then only have to validate key details of the loss event, confirm the validity of the recorded data, and ensure that devices have not been tampered with. This would significantly reduce the cost and length of claim cycles.

#2: Streamline underwriting with smart contracts

A blockchain can reduce costs and accelerate the underwriting process by eliminating extended document submissions by customers and tedious third-party verification processes. This is accomplished through the use of smart contracts. These smart contracts are directed to fetch customer-specific information from third-party systems, such as DMV databases for auto insurance policies, whenever a new member is registered. This data can then be used by an underwriter to finalize the policy and determine premium amounts. Once the policy has been finalized by the underwriter, the details within can be incorporated into another smart contract that can self-execute whenever a claim has to be processed.

#3: Protection against fraudulent claims

Experts estimate that about 5 to 10 percent of all US non-health insurance claims are fraudulent in nature, costing the industry more than $40 billion per year. A blockchain can be used to form a cross-industry, distributed register for a network of insurers. This network would hold a combination of external and customer data and would allow insurers to more effectively detect common fraud such as falsified injury or damage reports. A blockchain-based registry would allow insurers to:

Validate the authenticity of policy records.

Check the time and date of policy purchase or issuance.

Cross-reference customer records with past policy claims, police reports, and known identities to help detect potential patterns of fraudulent activity.

Confirm the transfer of policy ownership or track other common changes like location updates.

Identify duplicate or multiple claims. Any claim raised is shared in the network and verified by the participating insurers.

#4: Increase insurance access for under-served or emerging markets

Traditional insurance agencies struggle to compete in emerging markets due to high operational costs and a common preference to buy local. A peer-to-peer blockchain with smart contracts could allow these insurance agencies to reduce operational costs by automating the underwriting and claims handling process using pre-defined rules and reliable data sources. This would allow them to provider cheaper-than-average policies without reducing profits from said policies. For example, automatic payouts to insured farmers could be made when drought conditions are reported by verified climate or weather databases instead of requiring local teams to first assess conditions on the ground.